Botswana retailer Choppies is set to invest P77 million in loss-making Ukwala Supermarkets in which it acquired a 75 per cent stake earlier this year. The multinational retail chain says in its latest trading update that it will invest the cash to open 12 more stores in the subsidiary over three years.
The planned capital expenditure comes as Ukwala made a net loss of P27 million in the year ended June and is projected to remain in the red in the current financial year.
“Our operations in (Kenya) will remain loss-making in full-year 2017 as we continue to build our store base and invest in operational infrastructures,” Choppies said in the report.
Choppies says Ukwala currently has eight stores. The capital expenditure will add to Choppies’ investment of over P100 million to acquire the controlling stake in the retailer where the minority 25 per cent equity is held by Export Trading Group, a Tanzanian firm.
It will spend over P14 million in the current financial year and P31 million each in the subsequent two years, with four new stores to be opened in each of the three years.
The multinational said Ukwala had revenues of P45 895 948 million in the year ended June, with the gross profit standing at P8 018 840 while the gross profit margin coming in at 17.4 per cent.
Ukwala’s average basket size was P40, indicating that the retailer is still heavily dependent on lower middle class shoppers.
The supermarket is set to introduce loyalty cards which have become a major tool for customer acquisition and retention. The new branches will significantly expand the supermarket’s current total retail space of 14,199 square metres.
Ukwala closed the review period with 566 employees and a warehousing space of 3,448 square metres.
The Ukwala buyout made Choppies the first international retailer to buy into the Kenyan chain, with the Johannesburg Stock Exchange-listed firm saying it was attracted to the market by projections of strong economic growth and low penetration in the formal retail sector.